Half Yearly Report

RNS Number : 7144Q

European Assets Trust NV

09 August 2010

 



To:                    RNS

From:                European Assets Trust NV

Date:                9 August 2010

UNAUDITED INTERIM RESULTS - SIX MONTHS TO 30 JUNE 2010

·      Total return* performance for the six months to 30 June 2010

Sterling             Euro

Net asset value per share                                                                    1.0%              (6.9)%

HSBC Smaller Europe (ex UK) Index                                                   (0.3)%             (8.0)%

·      Total return* performance since December 1997 (portfolio refocused)

Sterling             Euro

Net asset value per share                                                                   116.8%           169.5%

HSBC Smaller Europe (ex UK) Index                                                   131.4%           183.8%

·      Annual dividend of 6% of net asset value per share (2010: Euro 0.4613)

Sterling             Euro

January and May dividends paid per share                                          £0.314              €0.270

(further dividend of €0.1473 payable in August)

Investment Manager's Review

Performance

In the six months to 30 June 2010, we outperformed the benchmark by +1.1%.  The net asset value ("NAV") total return* per share was -6.9% in Sterling which compares with a -8.0% return from the benchmark, the HSBC Smaller Europe (ex UK) Index.  In Euro terms, the NAV total return per share was 1.0% compared with -0.3% from the benchmark index. Unlike the sharp market sell-offs that we saw in 2007 and 2008, smaller company shares have done better in holding their value during the recent sell-off in markets.

The main driver of the recovery in markets since the nadir in March last year has been the better out-turn than expected for corporate profits. During a period of near-paralysis in global economic activity, companies were swift to take action to pare back costs in order to protect cash and profits. Once policy-makers in the main developed economies settled on the stimulus measures to underwrite the financial sector and engender some modest confidence, we saw a recovery in economic activity. This has led to several quarters of better than expected results from companies across the board and smaller companies have been no exception.

Confidence in the strength of the recovery was overshadowed, however, by fears over the solvency of the peripheral European economies which has so far seen direct aid given to Greece and the creation of a large ECB fund to support future bond auctions across the region. This growing focus on government solvency led to a new phase of risk aversion, with sharp sell-offs in the bond and equity markets of the weaker countries and a fall in the value of the euro.  Importantly, this period has also marked a relatively sudden shift in the focus of economic policy from quantitative easing to fiscal tightening. The peripheral economies look set for, at best, a period of deflationary contraction with some governments clearly having to restructure their balance sheets.  

Returning to the performance of smaller company shares, there are two main reasons behind their relatively resilient performance. First, much investor concern has been focussed towards the banks and the risk of a further wave of asset write-downs. Banks are a relatively small part of the smaller company benchmark in Europe, with more companies in areas such as wealth management and specialist insurance. Second, and most importantly, the recent sell-off represents a crisis of confidence but not a crisis of liquidity. Small company shares inevitably do worse in periods of forced selling where investors, required to raise cash, become indiscriminate about the price at which they sell; in such moments, the lower the liquidity, the greater the discount. The good news for investors is that a crisis of confidence is easier to reverse than a crisis of liquidity.

Turning to the portfolio, positive contributors included SEB, which manufactures household appliances, where the market became, justifiably, more optimistic about its ability to develop its presence throughout the emerging markets; and Viscofan, the meat casings producer which, although an attractive long-term investment in its own right, was arguably partly boosted by a flight to quality within the Spanish market as concerns regarding sovereign solvency escalated. Holdings which detracted from results included Wirecard, the payments processing business, which was rumoured to be involved in money laundering activities; and Tigenix, the Belgian biotechnology company. 

Liquidity Enhancement Policy

Over the first six months of 2010, a total of 125,000 shares were taken into treasury at an average discount of 12.1%. No shares were issued out of treasury.

Gearing and Cash

At the start of the period, the portfolio had a cash balance of 3%. As the market sell-off extended, we took the opportunity to invest in a number of companies which we believe offer good long-term returns. Examples include Origin Enterprises, an Irish-domiciled agricultural inputs and agronomy services provider; Gerresheimer, a market leading German manufacturer of packaging and devices for drug delivery; and the Dutch Exact Holding, which produces business process software for small companies on a worldwide basis. The company ended the period with gearing of 3.4%.

Outlook

We remain fundamentally positive about the return prospects for the equity of high quality businesses; the concerns relating to the debt position of the Southern European countries has left many companies trading at fundamentally attractive levels. Over the coming months we will attempt to increase the quality of the portfolio whilst being greedy on price.

Paras Anand

Investment Manager

F&C Investment Business Limited

*Capital performance with dividends added back

Change in Management Arrangements

The Boards of European Assets Trust announced on 9 June 2010 that they have had been advised by F&C Investment Business Limited that the investment management services provided to the Company had been strengthened by the appointment of Paras Anand (head of European Equities at F&C) as lead investment manager to the Company with full responsibility and accountability to the Boards for all investment matters.  The Boards fully support this change in investment manager.  The Boards have met with Mr Anand to review and confirm his rigorous approach to portfolio management.

Dividend Information

2010

Dividends of €0.144 and €0.17 per share have been paid in January and May 2010 respectively and a further dividend will be paid in August 2010 of €0.1473 per share. This will result in total dividends paid for the year of €0.4613 per share. The increase in the May and August dividends is to offset the element of Dutch withholding tax applicable and provide a full 6 per cent annual payment to shareholders.

Balance Sheet		30 June	31 December
		2010	2009
	Note	€000	€000
Investments
Securities	5	109,277	108,277
Net current (liabilities)/assets	6	(3,592)	1,784
Total assets less current liabilities		105,685	110,061
Equity shareholders' funds		105,685	110,061
Net asset value per share - basic		€6.99	€7.23
Expressed in sterling		£5.72	£6.42
The number of €0.46 shares in issue at 30 June 2010 was 15,116,419 (31 December 2009 - 15,228,760).

Revenue Account - six months ended		30 June	30 June
		2010	2009
	Note	€000	€000
Income from investments
Securities		1,943	1,932
Deposit interest		-	26
	1	1,943	1,958
Movements on investments - realised		(1,224)	(30,445)
Movements on investments - unrealised		1,399	46,846
		175	16,401
Total income		2,118	18,359
Expenses and interest	4
Administration expenses		(540)	(345)
Investment management fee		(449)	(375)
Interest		(16)	(69)
Net income	2	1,113	17,570
Distributed by dividends	3	4,668	3,656
Earnings per share	Euro	0.07	1.11
Dividends per share	Euro	0.314	0.236

Statement of Cash Flows - six months to

	30 June	30 June
	2010	2009
	€000	€000
Cash flow from investment activities
Interest, dividends and other income	1,774	1,723
Purchases of shares	(41,111)	(24,857)
Sales of shares	39,900	39,064
Administrative expenses, investment management fees and interest charges	(1,018)	(981)
	(455)	14,949
Cash flows from financial activities
Dividends paid	(4,668)	(3,656)
Repurchase of own shares	(901)	(4,507)
Loan facility	4,157	-
	(1,412)	(8,163)
Cash at bank
Net increase for the period	(1,867)	6,786
Balance as at 31 December	1,867	7,611
Balance as at 30 June	-	14,397

Other Information

Representation concerning financial statements and Investment Manager's Review

The Management Board confirms that, to the best of its knowledge, the condensed financial statements, together with comparative figures, have been prepared in accordance with applicable Dutch generally accepted accounting principles for interim reporting. These condensed financial statements give a true and fair view of the state of affairs of the Company at 30 June 2010 and of the net result for the period then ended.

The Investment Manager's Review in this Interim Report gives a true and fair view of the situation on the balance sheet date and of developments during the six months period, together with a description of the principal opportunities and risks associated with the expected development of the Company for the remaining months of the financial year.

In the normal course of its business, the Company holds a portfolio of equities and other securities, and manages investment activities with on-balance sheet risk. Risk management is described in the Notes to the Accounts for the year ended 31 December 2009 and the principal risks have not changed materially since the date of that report.

Notes
1.     Income is stated after deduction of irrecoverable withholding taxes of €nil (2008 - €nil).
2.     Income for the six month period should not be taken as an indication of the income for the full year.
3.     Two dividends totalling €0.314 per share have been paid in January and May 2010.  A further dividend of €0.1473 per share will be paid on 27 August 2010.
4.     The total expense ratio, based on average shareholders' funds for the first half of the year amounted to 1.78 per cent annualised (first half year 2009, 1.70 per cent annualised).
5.    Securities comprise only listed investments.  Listed investments are valued at the bid price on the valuation date on the relevant stock markets.
6.    During the six month period ended 30 June 2010, the Company had a banking facility available of €18,500,000.  The Company had €4,157,178 drawn down at 30 June 2010 (31 December 2009: €nil).
7.     During the six months to 30 June 2009 the Company purchased 125,000 shares to be held in treasury. In addition, 12,659 shares were issued during the period via the scrip dividend option.
8.     The accounting policies applied in preparing the half-year figures at 30 June 2010 are consistent with those underlying the 2009 annual accounts.
9.     Copies of the interim report will be mailed to shareholders and will be available from the registered office of the Company and the website www.europeanassets.co.uk.

For further information, please contact:

Paras Anand

F&C Investment Business Limited, Investment Managers              0207 628 8000

Michael Campbell

F&C Investment Business Limited, Company Secretary                0207 628 8000

 

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